Have you ever thought of investing in real estate? With the bumper returns witnessed till a couple of years back, the answer might be yes but your pocket might not have allowed you to buy a house or commercial property. Now, with the evolution of securities market, investing in real estate will soon be possible with an amount as low as Rs. 1 lakh. Just acting like mutual funds which pool and invest money in stocks and bonds, Real Estate Investment Trusts (REITs) will pool the money from investors and invest it in real estate properties.
Following are the benefits of investing through REITs:
1. Low Investment Requirement – Investors will be able to buy units of REITs from both primary and secondary markets. During the initial issue of units in REITs in in an IPO, the minimum investment amount will be Rs. 2 lakh, while on stock exchanges, the minimum lot size will be Rs. 1 lakh. So, effectively, one shall indirectly own a percentage share in the properties that REITs have invested in.
2. Regular Income Flow – REITs will need to distribute at least 90% of the distributable cash flow on bi-annual basis. The cash flow shall get generated from the rental of the properties in which investment has been made. Further, the value of investment in REIT shall also increase through appreciation of the properties invested.
3. Diversification of Portfolio – Real estate investments have always been categorised as high ticket investments which indeed call for high upfront payment. Hence, diversification of portfolio through investing in real estate was not something every investor could afford to. However, since REITs require low investment, one can effectively reap benefits to the appreciation and rentals to a good commercial property. (Read more on Diversification here)
4. Liquidity – REITs give a positive answer for another important investment rationale by providing easy liquidity through compulsory listing of REITs on stock exchanges. While investing directly in real estate may prove to be an illiquid investment and blockage of funds for the investor, REITs offer ease and liquidity since the investor can sell off the units through stock exchanges.
So, with REITs providing benefits of diversification, easy entry and exit, the same should indeed be considered for inclusion in the long term portfolio. What’s your take on this?
Check out the A2Z of Personal Finance here.